What to Look For In a Financial Adviser

 

4 Keys to a Good Adviser

- Fiduciary
- Fee-Only
- Comprehensive
- Life Planning


90% of licensed financial advisers are legally salespeople with an obligation to maximize profits for their company, not their clients. Advisers who are legally held to the fiduciary standard of doing what is best for their clients will have a Form ADV Brochure on file with the SEC. Here's ours.

I believe financial planning should be a profession rather than an industry - that planners should act more like doctors than car salesmen. When you go to a doctor, you expect the best diagnosis for your health, not to be sold a product. The same should be true of your financial planner.


Fiduciary

Being a fiduciary means the adviser is obligated to give you advice which is best for you, and to fully disclose any conflicts of interest. You would think that all financial advisers would have to do this, but most advisers have no obligation to do what's in their client's best interest.

Instead, they are legally bound by the suitability standard, which means they can advise you to invest in a more expensive investment so long as it's suitable to you. This often means they advise you to invest in investment A instead of B because investment A pays them $5,000 while investment B only pays them $3,000. Further, advisers under the suitability standard actually have a legal obligation to do what’s in the best interest of their company, and not their client.

Seek a Fiduciary Registered Investment Adviser

A good financial adviser will be legally obligated to serve your best interests first, and to give advice which puts more money in your pocket - not the adviser's. Currently, only Registered Investment Advisers are legally held to the fiduciary standard of putting their client first. 

We chose to be held to the highest fiduciary standard in the industry because it's the right thing to do. We are required to serve our clients' interests first in all aspects of planning and to fully disclose potential conflicts of interest. This isn't just a company policy for us, it's a legal obligation.


Fee-Only

Just like every other person, and every other profession, how an adviser is paid impacts their actions and how they offer advice. There are 3 ways an adviser can get paid.

  1. Fee-Only advisers are paid directly by their clients for the advice they give and cannot accept money from third-parties.

  2. Commissioned advisers are paid a commission from the mutual fund, insurance company, or other third-party when they sell you a financial product.

  3. Fee-Based advisers will get paid directly by their clients, and may also receive a commission from the mutual fund, insurance company, or other third-party for the financial product they sell you.  

The problem with commissions

Commissions, referral fees, and other kick-backs create a conflict of interest between the adviser and the client. It may sound crazy, but most 'advisers' have massive financial incentives to advise clients toward higher-cost financial products that pay the adviser higher commissions. The adviser earns more money while your returns diminish due to higher fees. Commissioned advisers also have other incentives designed to increase the profitability of their company, often at a cost to the client. Not only are advisers incentivised to guide you in a particular direction, but many commission programs include sales contests and other incentives designed to get advisers to push particular (usually high-profit) products to their clients. It’s the financial equivalent of a restaurant pushing a fish special because the fish is going bad - only with your money.

Seek a Fee-Only Adviser

A fee-only adviser can only accept compensation directly from their clients for the advice provided, similar to the way most attorneys or CPAs work. This means they are not allowed to take commissions or receive other kickbacks related to the advice they give. Make sure to ask an adviser if they accept any commissions, referral fees, personal perks , or any other kickbacks from outside companies. An adviser should be paid only by the client, which greatly reduces conflicts of interest.

Loyalty goes to whomever writes the check, so if an adviser is paid through a commission from the insurance company or mutual fund company, the adviser's loyalty is to those companies. And legally speaking, commissioned advisers are acting as representatives of the insurance or brokerage company, and therefore have a legal duty of loyalty to their company, not their clients. Both insurance agents and stock brokers are compensated as either commissioned or fee-based advisers.

As fee-only advisers we don't have the typical conflicts of interest which come from commissions, kickbacks, or other forms of hidden compensation. Our loyalty is always to our clients, and we avoid incentives which could influence us (even subconsciously) to alter our advice. 


Comprehensive

A comprehensive adviser will look beyond your investments and advise you on all aspects of your financial plan. Your life isn't just investments and retirement planning. Comprehensive planning takes an integrated approach which considers your entire financial picture. Planning goes beyond investments and retirement to incorporate all of your goals and includes cash flow analysis, tax planning, risk management, career development, debt management, estate planning, and more. 

What the Academic Research Says

Much of the research relating to the benefits of a financial adviser points to the need for the adviser to look at your entire financial picture, not just investments. A Texas Tech University study titled Planning for Retirement identified that investors utilizing comprehensive advisers had significantly higher retirement savings balances, while those who worked with non-comprehensive advisers had no measurable effect on their retirement savings. 

Our version of comprehensive planning includes everything above, but also includes advice on starting a business, going back to school to advance your career, investing in real estate and rental properties, and any other aspect of life impacting money. Purposeful SP was founded by a tenured business professor who has dedicated over two decades to guiding students in entrepreneurship, career advancement, and personal finance.


Life Planning

You aren't seeking a financial adviser just to make more money. You have life goals you want to accomplish such as retiring comfortably, buying a house, sending your kids to college, or starting a business. Your life goals are what give money a purpose. And without purpose, money is just a number on a piece of paper which gets mailed to you once a month. 

Your money is a means, not an end

Your adviser should be focused on helping you achieve your life goals, not just on "increasing wealth." An adviser who focuses exclusively on the money will give advice which is contrary to the life you want for yourself and your family. A good adviser, however, will make sure your long-term needs are met while encouraging you to spend the appropriate amount of money on achieving your life goals. 

An adviser should begin their process by understanding your goals and exploring the life you want. Then, the recommendations should be focused on how to most effectively and efficiently achieve your goals. If the adviser spends the first meeting convincing you of how great their products are, how good their investment track record is, or how they can get you higher returns with lower risk, consider a different adviser. Your goals should be the foundation of the plan, and exploring and understanding your goals should be the adviser's first priority.  

We view money as a tool to help you achieve your great life, both now and in the future. Every plan and every recommendation is designed with one goal in mind: to get you to your goals.

Joshua Escalante Troesh, MBA

Adviser Profile

  • Fiduciary Financial Planner

  • Ranked #1 Nationally on Investopedia’s Advisor Insights*

  • Tenured Professor of Business

  • Passed the rigorous Certified Financial Planner (CFP) Exam

  • Quoted regularly in Forbes, U.S. News & World Report, and other media


About Purposeful SP

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